Is It Worth the Hassle?

Claims come in two forms: straightforward or not so straightforward. In a straightforward claim, the cause and origin is clear, the insured is cooperative and compliant in completing the conditions and requirements asked of them and the policy responds as to how the risk was underwritten. Then there are those not so straightforward claims. The cause and origin is often undetermined, pre-existing damages overlap damage caused by the reported claim, the insured is difficult and demands the company pay for everything even if there is no coverage under the policy. Furthermore, this claim can contain moral hazards.

What is a moral hazard?

Moral hazards relate to human behaviour. Often the insured that represents a potential moral risk displays an uncaring attitude toward responsibility, does not consider the law of indemnity and knows how far to push before the claim can be called fraudulent. Some examples of moral hazard include hoarding, poor property maintenance, claiming for items that were not damaged as a result of the loss, a morally corrupt character and poor outlook on life (this type of risk is explained further in Chapter 3, pages 9 through 11 of Essential Skills for the Insurance Broker and Agent Moral Hazard, published by The Insurance Institute of Canada).

The moral hazard or difficult insured is the person who demands the company’s time and money regardless of whether their demands are reasonable or not. They don’t care if their expectations are unrealistic and will aggravate claims reps. They will be persistent to the point where they get what they want because it is not worth the company’s effort to deal with them. This type of insured steals away from the service, which should be reserved for the straightforward claims (the majority of claims) by effectively draining the claim representative’s time and energy. This type of claim increases claim costs, frustrating both the claims representative and the broker. The insured, more often than not, defeats the purpose of indemnification for which the insurance world is suppose to stand.

The unforgettable ones

There are always those few claims that you’ll never forget. The one I recall best, regarding moral hazard and a difficult insured, was assigned from an insurance company who recognized the value of farming out this claim to an independent adjuster.

The insured had hired a friend to act on their behalf to settle the claim. Essentially, this person was acting as a public adjuster, but without a valid license, and was harassing the claim’s staff to the point where they felt this person might be dangerous (it just occurred to me now we should charge more for life threatening claims!).

When power was restored to the claimant’s residence following an outage, a power surge caused damage to the appliances and some of the contents. The insured was claiming approximately $15,000 worth of damages, which included a new home theatre system, a new electrical panel, almost all of the appliances and an amount for pain and suffering.

Experience has shown that sometimes it is necessary to have an actual presence in order to settle a claim. During our first meeting with the insured, we presented a list of conditions necessary for them to comply and cooperate with before the claim could be settled. It was also necessary to get the insured and friend to sign an “Authority to Act” form and to make it clear to the friend that acting as a public adjuster without a license was illegal.

Attend the scene

After completing a thorough investigation, which included inspecting all the appliances and completing the necessary paperwork, the claim was reduced from $15,000 to under $4,000. The other thing we were able to do, by attending the scene, was gain leverage and information to successfully negotiate with the insured to come to a settlement. Some of the items being claimed would have been impossible for the insured to even check because of all the contents piled around or on top of them, yet they were included on the insured’s Schedule of Loss forms. This is sometimes a frustrating process when handled over the phone. I truly believe that at times it is necessary to have a company presence felt in person and not just over the phone.

The claim was settled after every single relevant document was notarized, including a Final Proof and the acquirement of the insured’s signature was obtained. This particular insured was also one of the first homes I have been in where hoarding was a problem, and, if left on the books, could have potentially an even greater claim impact in the future. You couldn’t see the carpet for all the items in the house.

People who present a moral risk are often controlling, manipulative and try to intimidate you into meeting their demands. However, calling their bluffs can lead to them backing down. The best way to stop this type of claim relies on preventive measures, which should serve as a reminder to those who bind policies that the risks, both inside and out, should be inspected.

Setting conditions

When it came time for us to handle this particular claim, we set forth certain conditions, and requested certain information from the insured. This included:

• a witnessed authorization by the insured giving the adjuster authority and permission to act on behalf the claimant, as well as it being signed by the adjuster and a witness.
• having the electrical panel checked by a certified electrician and having a diagnostic analysis drawn up by him to determine if the panel is damaged due to a power surge.
• having all of the appliances being claimed on the Schedule of Loss form to be checked and a report stating whether they can be repaired or have to be replaced and if the damage is the result of a power surge.
• completing an inspection and record the make, model and serial numbers of any of the larger items.
• a completed Schedule of Loss Form for the food items that were damaged
• electronics brought in for inspection.
• a Proof of Loss must signed and notarized in exchange for the settlement

Adam Cormier is an adjuster with Cormier Adjusting.